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Pentagon Must Handle Spending Slowdown Responsibly, Lynn Says

NEW YORK, May 11, 2011  Managing a slowdown in defense spending responsibly will take more than being more efficient, Deputy Defense Secretary William J. Lynn III said here tonight.

Deputy Defense Secretary William J. Lynn III addresses the audience at the Royal Bank of Canada Defense and Aerospace Conference in the hangar deck of the USS Intrepid Sea, Air and Space Museum in New York, May 11, 2011. DOD photo by Terry Mitchell(Click photo for screen-resolution image);high-resolution image available.

As the keynote speaker for the Royal Bank of Canada Defense and Aerospace Conference, Lynn told an audience at the Intrepid Sea, Air and Space Museum that the Defense Department must find ways to spend significantly less, even in the midst of two active conflicts and numerous other commitments and threats.

“It would be desirable to defer this challenge until a somewhat later date, after the transition in Iraq is complete and we are closer to handing off the combat mission in Afghanistan to local forces,” Lynn said. “But the deficit crisis doesn’t allow us that luxury. We need to get our fiscal house in order, and we need to do it expeditiously.”

The deficit crisis, he said, is a matter of national security.

“Our security begins with a strong economy,” he explained. “Our ability to exert global influence [and] protect interests abroad is threatened if we’re not able to reduce the deficit and to keep our national debt within sustainable bounds. No great power can project military force without a sound economy. … Deficits are now approaching 10 percent of our economy, and austerity measures are required to have long-term health.”

President Barack Obama has made clear that painful cuts in federal spending are necessary, Lynn said. “Everything has to be on the table: revenues, entitlements, domestic discretionary spending and defense spending,” he told the audience. “The defense budget alone cannot solve our deficit crisis. But it’s hard to envision an overall solution -- either economically or politically -- that does not include some contribution from the 20 percent of government spending that goes toward defense.”

For the Defense Department to accomplish this drawdown while engaged in Afghanistan and transitioning security responsibility in Iraq -- while still remaining ready to intervene elsewhere when national security interests are at risk -- policy makers and industry executives alike will need to perform “a high-wire act,” Lynn said.

“For [the Defense Department], how to slow defense spending responsibly while retaining the most effective fighting force in the world is the central task,” he said. “For industry, how to adjust to a less-robust defense market while maintaining technological prowess is their central task.

“Together,” he continued, “we must manage our resources without hollowing out our armed forces and without jeopardizing our industrial base. We must accommodate fiscal changes without undercutting our military effectiveness, now or in the future.”

The deputy secretary told the audience that that nation has reached the fifth inflection point in post-World War II defense spending. The first three drawdowns came at the end of conflicts: World War II, Korea, and Vietnam.

“The fourth drawdown came in the mid-1980s, and was somewhat analogous to the one we face today,” Lynn said. “Deficits during the early Reagan administration caused Congress to impose spending caps, which led to defense reductions, and those reductions were accelerated as the Cold War ended and the Soviet Union broke up.”

All of the transitions had something in common, Lynn said: each time, the Defense Department suffered a disproportionate loss of capability and subsequently had to rebuild those capabilities, often urgently and at great cost.

“And each time, the industrial base struggled to reverse course,” he added. “So in other words, we’re 0-for-4 in managing drawdowns to this point. To improve the playing field, we have to do better on this drawdown.”

Four broad lessons from prior drawdowns should apply this time around, Lynn said.

The first, he said, is to make hard decisions early.

“Things are not going to get better,” he said. “There’s going to be less, not more, money in the future, and even well-managed programs experience some cost growth. So if we cannot afford it now, we certainly won’t be able to afford it when funds are tight. Given our budget challenges, it is irresponsible to embark on programs that we simply cannot afford. We need to live within the resource levels that we’re going to have, and to do that we need to make the hard decisions now.”

The second lesson, Lynn said, is that pure efficiencies alone cannot generate the needed savings.

“By pure efficiencies, I mean doing the same mission, the same thing, just at less cost,” he explained. “We can generate some savings in that way. Cloud computing, I think, offers the potential to hold down or even reduce information technology costs while giving us greater capability. But we’re not going to find enough of those pure efficiencies to get the required savings.”

That means elimination of programs that are valuable, but not valuable enough to sustain in the foreseeable budget environment, Lynn said. “The ‘nice-to-haves’ must go,” he added. “We have to pare back to our core missions, to the essential goals the department needs to maintain.”

The third lesson from past drawdowns, the deputy secretary said, is the need to balance reductions.

“Reductions focused on just a single area like operational accounts hollow out the force by depriving it of the needed training and maintenance resources,” he said. “Similarly, disproportionate cuts in the investment accounts just produce a procurement holiday, which we then have to buy back at great cost at a later time, probably with some urgency.”

To avoid that, Lynn said, balanced reductions across force structure, operating accounts and investment accounts are required. “We do not want to end up the process with a force of the same size that could do all of the things that we do now, just not as well,” he said. “We need to choose the capabilities we’re going to retain and choose the ones that we’re not going to retain.”

The final lesson from prior drawdowns is not to cut too much too fast, especially from core mission missions, Lynn said.

“Rebuilding capabilities five, 10, 15 years from now comes with a cost multiplier, and cost is not the only price that we pay,” he said. “We pay for these decisions with the lives and welfare of our troops.”

Lynn cited the post-World War II drawdown as an example, noting it caused U.S. forces to pay a high price in the initial stages of the Korean conflict. “We don’t want to make cuts today that we’re going to regret in the near or midterm future,” he said.

Defense Secretary Robert M. Gates anticipated the situation and shifted the Pentagon’s fiscal and strategic approach in accordance with the lessons from previous drawdowns, Lynn said.

“In the past two years, we have been making tough decisions and we’ve been been making them early,” he said, noting the department ended purchases of F-22 fighter jets and C-17 transports and terminated the presidential helicopter program, which was over cost, behind schedule and had requirements that exceeded its mission needs.

The Defense Department also is closing less-essential organizations, such as U.S. Joint Forces Command, Lynn said, and has proposed conditions-based reductions in the Army and the Marine Corps beginning in fiscal 2015 and 2016. Officials are phasing the reductions in over several years, he added, to avoid precipitous cuts.

“If we continue this same approach and take seriously the lessons of history,” he said, “we can avoid going 0-for-5 in managing defense drawdowns.”